Collapse of childcare giant ABC to fuel legal overhaul

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Patricia Karvelas, Political correspondent | November 17, 2008
Article from: The Australian

THE collapse of childcare giant ABC Learning has fast-tracked Rudd Government plans to overhaul corporate law to block creeping acquisitions, by which large companies progressively buy up smaller competitors.

Consumer Affairs Minister Chris Bowen said the experience of Australia's biggest childcare provider showed there was an urgent need to close the loophole in the Trade Practices Act under which market power could be concentrated without oversight from the competition watchdog.

Mr Bowen told The Australian plans to bolster the power of the Australian Competition and Consumer Commission to block creeping acquisitions would be unveiled by the end of the year.

He said yesterday that ABC Learning - which provides care to 120,000 children and put itself in voluntary administration this month - showed the need to create laws to stop companies growing out of control.

"The ACCC would have had the power to stop what was happening (with ABC Learning) if they had the view it had formed too much market dominance," Mr Bowen said.

"The ABC case has drawn more public attention to the fact, and certainly for those who say there's no need for creeping acquisition laws, has shown there actually is."

The Government is considering two options, but The Australian understands it will probably combine the proposals into a hybrid model.

The first option put by the Government's discussion paper would prohibit an acquisition if, when combined with other acquisitions by the company over a certain period, it would substantially lessen competition.

The second option would prohibit a company with a substantial degree of market power from making an acquisition that resulted in any lessening of competition, substantial or minor.

The laws are more likely to affect companies such as ABC Learning, which acquired numerous individual childcare centres to become the biggest operator in the nation.

"Childcare is one area where this failing in the law has been highlighted," Mr Bowen said.

"There are other areas which have been of some concern for some time in relation to large and powerful companies acquiring a large number of outlets in small tranches. The passing of a creeping acquisition law would give the ACCC the power so that no one party could become dominant by small acquisitions over a long period of time.

"The ACCC comes in for criticism from some quarters but they deal with the laws that they have and they've been fighting for many years on this and other areas with one hand tied behind their back, because they haven't been given the adequate laws to do their job."

Read more:
Collapse of ABC to fuel legal overhaul | The Australian

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Childcare Giant Goes into Voluntary Administration



ABC Learning today surrendered to voluntary administration, with banks and creditors now looking to recoup huge amounts in loans borrowed against the childcare giant.

The company has been crippled by the ongoing economic downturn, and there's growing concern some centres may start shutting their doors.